2017 (11) TMI 2019 - AT - Income Tax

Introduction of jewellery as stock in trade in the proprietorship concern of the assessee - assessee HUF has introduced raw gold and silver in its capital account - parent HUF of the assessee HUF had declared the jewellery in the VDIS Scheme 1997 accepted by the Income Tax Authorities and a certificate of acceptance was duly issued in favour of the assessee - HELD THAT - Old and silver assets were declared by Babu Ram Sons in the VDIS 1997 and due tax was paid thereupon. There was no question of doubting the occupation / possession of the assets in the hands of the declarants. Further, the assessment year under consideration is assessment year 2010-11, whereas, admittedly the wealth tax returns were filed pertaining to the assessment years 2001-02 to 2006-07 which have been duly accepted, hence, the holding the assets by the parent HUF, Babu Ram Sons HUF cannot be doubted for the year under consideration. As in the case of CIT Vs. Kanchan Bhalla 2010 (7) TMI 124 - DELHI HIGH COURT has held that just because the jewellery was not found in the earlier searches, it cannot be said that non-existent jewellery had been declared in the VDIS scheme, 1997. That it was not open to the Assessing officer to question existence of the said jewellery. That it had been declared under the VDIS scheme. No justification on the part of the lower authorities in making the addition on this issue and the same is accordingly ordered to be deleted. Advances received from customers - unexplained receipts - Assessee explained that during the course of trading of jewellery, advance from customers were received against supply to be made in future, which is a normal business practice - HELD THAT - It is an admitted fact that the assessee had shown advances from customers. All the advances have been made through banking channels. In the subsequent years, the sales have been booked and the profit has been offered for taxation. In these circumstances, we find no justification on the part of the lower authorities in making the impugned additions as unexplained receipts. The addition made by the lower authorities on this issue are also directed to be deleted. This issue is accordingly decided in favour of the assessee. Addition of closing stock - discrepancy in the valuation of stock - HELD THAT - CIT(A) after considering the submissions of the assessee observed that there was force in the arguments of the assessee. He further observed that it was a settled position of law that the method of valuation regularly followed by the assessee could not be tinkered with in the absence of any findings that there were inherent discrepancies because of which it was not possible to determine the correct income of the assessee. AO has not pointed out as to what was the discrepancy in the method of valuation adopted by the assessee. AO simply applied another method of valuation rejecting the method of valuation adopted by the assessee consistently for the past so many years which has also been accepted in the earlier assessment years. We, therefore, do not find any infirmity in the order of the CIT(A) on this issue and the same is upheld.

Summary

Issues Involved:

1. Contravention of provisions of section 250(6) of the Income-tax Act, 1961.
2. Addition of Rs. 2,47,34,493/- on account of introduction of personal jewellery as stock in trade.
3. Addition of Rs. 82,50,250/- out of total addition of Rs. 99,95,327/- on account of advances received from customers.
4. Deletion of addition of Rs. 1,12,87,092/- on account of closing stock discrepancy.

Issue-wise Detailed Analysis:

1. Contravention of Provisions of Section 250(6):
The assessee argued that the CIT(A) erred in passing the order in contravention of the provisions of section 250(6) of the Income-tax Act, 1961. This ground was deemed general in nature and required no specific adjudication.

2. Addition of Rs. 2,47,34,493/- on Account of Introduction of Personal Jewellery as Stock in Trade:
The assessee introduced raw gold and silver amounting to Rs. 2,47,34,493/- into its capital account, claiming it was received from its parental HUF, Babu Ram & Sons, HUF, which dissolved upon the death of Smt. Dayawanati Jain. The jewellery was declared in the VDIS 1997 scheme, and taxes were paid. The Assessing Officer rejected this explanation, citing discrepancies in the description and valuation of the jewellery and lack of evidence of the HUF's dissolution. The CIT(A) upheld this addition.

Upon appeal, the Tribunal noted that the jewellery was declared in the VDIS scheme, and the Department accepted this declaration, precluding further objections. The Tribunal found the affidavits from other HUF members relinquishing their claims credible. The Tribunal also accepted the explanation regarding the conversion of jewellery into raw gold and silver for valuation purposes. The Tribunal concluded that the addition was unjustified and ordered its deletion.

3. Addition of Rs. 82,50,250/- out of Total Addition of Rs. 99,95,327/- on Account of Advances Received from Customers:
The Assessing Officer added Rs. 92,95,327/- as unexplained receipts due to the assessee's failure to provide confirmations and complete addresses of customers. The CIT(A) reduced this addition to Rs. 82,50,250/-, acknowledging that some advances were from previous years.

The Tribunal found that the advances were received through banking channels and were duly recorded in the assessee's books. Corresponding sales were booked in subsequent years, and profits were offered for taxation. The Tribunal held that the advances were genuine and directed the deletion of the addition.

4. Deletion of Addition of Rs. 1,12,87,092/- on Account of Closing Stock Discrepancy:
The Revenue appealed against the CIT(A)'s deletion of an addition of Rs. 1,12,87,092/- made by the Assessing Officer due to a discrepancy in the valuation of closing stock. The Assessing Officer had calculated the closing stock based on the average sale value, resulting in a higher valuation.

The CIT(A) noted that the assessee consistently followed the method of valuing stock at cost or market price, whichever was lower, which was accepted in previous assessments. The Tribunal upheld the CIT(A)'s decision, finding no discrepancy in the method of valuation adopted by the assessee. The Tribunal dismissed the Revenue's appeal.

Conclusion:
The Tribunal allowed the assessee's appeal by deleting the additions related to the introduction of jewellery and advances from customers. The Tribunal also upheld the CIT(A)'s decision to delete the addition related to the closing stock discrepancy, thereby dismissing the Revenue's appeal. The order was pronounced on 10.11.2017.